-- Strong franchise in Italy, the German State of Bavaria, Austria, Poland, and Central and Eastern Europe.

-- Business and revenue diversification.

-- Better coverage ratio through provisions on impaired loans in Italy than the average for domestic peers.

Weaknesses:

-- Significant business exposure in Italy, where economic risk is higher than the average in peer countries.

-- Weaker asset quality than peers', particularly in Italy, due to high stock of impaired loans.

-- Weakened profitability metrics. Outlook

Standard & Poor's Ratings Services' outlook on Italy-based UniCredit SpA (UniCredit) is negative, reflecting the possibility that we could lower the ratings if, all else remaining equal, we were to lower our ratings on the Republic of Italy (unsolicited BBB+/Negative/A-2). The ratings on UniCredit SpA cannot exceed those on Italy, according to our criteria regarding the relationship between the ratings on financial institutions and their related sovereign in the European Economic and Monetary Union (eurozone).

We might also lower our ratings on UniCredit if:

-- We saw further weakening in domestic economic and banking industry conditions, or

-- We perceived that the bank's 2012 and 2013 asset quality metrics were markedly worse than we currently anticipate under our base-case scenario.

Under our base-case scenario, we anticipate that UniCredit's nonperforming assets (NPAs) will accumulate in 2012 and 2013 at rates similar to 2011's. We base our NPA estimates on our view that the impact of the weaker Italian economy is likely to counterbalance UniCredit's more conservative approach to credit risk management in Italy since 2011. We expect UniCredit's loan loss provisions to stay at about 100 basis points (bps) in 2012 and 2013. UniCredit will likely maintain its current levels of loan loss coverage through provisions for problem assets.

A revision of Italy's outlook to stable would support a similar change of the outlook on UniCredit. We might take such an action if, all else being equal, we anticipated an improvement in economic and operating conditions for the Italian banking system.